FTA opportunity for Korean logistics providers

On March 15, 2012, Korea’s free trade agreement (FTA) with the U.S. took effect. However, public opinion in Korea on the benefits of this agreement is still not settled. Nevertheless Korean industries such as electronics, pharmaceuticals and automakers look forward to benefit from the agreement as they expect an increase in imports and exports between the two countries. Various logistical changes have been implemented in Korea to cope with the effects of the FTA. For example, Korean flag carriers Korean Air and Asiana Airlines have introduced bigger freighters and shipping lines have been adjusted. Port facilities have been upgraded.

Over the past few years the international transportation industry encountered many difficulties due to high oil prices, a sustained decline in freight costs and an increase in supply from airlines and shipping lines. But after the implementation of the FTA, optimism exists within the transportation industry as the expected increase of freight exchanges will lead to an increase of sales and profits.

However, while the FTA created new opportunities for Korean logistical providers, it is expected that U.S.-based logistical providers will accelerate the expansion of their capacities in order to prepare for the Korean market. This will result in fierce domestic competition between Korean and U.S.-based logistical providers since they will try to benefit from the increase of international freight between the two countries.

As a result of the global economic recession, U.S.-based logistic providers have been providing a wide range of logistic services in various industries such as electronics, automobiles and chemicals among others. Logistic services include international and domestic transportation, inventory and warehouse management, manufacturing, materials and shipment management. Other logistic services like value added and specialized services are provided in accordance with the needs of corporate customers. This enables U.S.-based logistic providers to react accurately on a variation of predictions for appropriate and timely realization of the production of goods.

In the midst of this logistics challenging period, United Parcel Service Inc. (UPS) recently announced that it had takeover talks with TNT Express NV (TNTE). The purpose for the intended takeover is to help expand its presence and business development in European and Asian markets. In Korea, overlapping operations could produce synergies for UPS and lead to an increase in Korean market share, not only for parcel delivery but also for general logistics services as well. Another U.S.-based global logistics services company, FedEx Corporation, continues domestic investment and network expansion in Korea. The company also diversified its service scope from air freight and express to warehousing and distribution for Korean corporate customers.

While U.S.-based logistics providers continue to expand and invest to increase their Korean market share, Korean logistics providers are focusing on classical maritime and air transport from Korea through cost reductions. Although lower logistic costs are essential to remain globally competitive, unless Korean logistics providers compete with global logistic providers through sophisticated logistics capabilities, it would be difficult to secure a competitive edge as well as hard to keep up with changes in market conditions.

Now is the time for Korean logistics providers to proactively reflect on the challenging logistics environment in which barriers are removed to enter the Korean logistic markets as a result of the FTA between Korea and the U.S. Korean logistics providers should also be aware of other opportunities for growth as certain threats are included in the FTA with the U.S. Furthermore the Korean government will promote its FTA with Turkey, China and Japan in the future which at present requires and ongoing growth paradigm in logistics RND innovation, infrastructure investment and concentrated developments.

Now is the time for Korean logistics providers and the logistics industry as a whole, to be concerned about future growth and finding a way to achieve it rather than merely just having a vague hope to realize it. <The Korea Time/Lim Jang-hyuk>

*The writer works for Kuehne Nagel, a Switzerland-based global logistics company, as a director.